Life Insurance Corporation of India Vs. Raja Vasireddy Komalavalli Kamba and Ors.
Facts of the case
The brief facts of the case are:
On 27 December 1960, the husband of the respondent no. 1, namely Raja Vasireddy Komalavalli Kamba(hereafter referred as the deceased) had filled a proposal form for life insurance of Rs 50,000. The medical examination was conducted on 27 December 1960 by Dr. Sri C. Sambasiva Rao of the deceased and prepared a report and the report was duly submitted to the Appellant along with the proposal form. In furtherance of the agreement, In furtherance of the agreement, the deceased had issued two cheques of renumeration Rs. 300 and Rs. 220 in the name of the Appellant as the payment for the first premium amount.

The Appellant encashed the said cheque on 29 December 1960 and the second cheques was encashed on 11 January 1961. The deceased died on the following day, 12 December 1961. On 16 December 1961 the respondent no. 1, the wife of the deceased wrote to the Appellant, informing the corporation about the death of her husband and demanded the insurance amount, Rs. 50,000 from the corporation as mentioned in the insurance agreement.

On 28 January 1961 the divisional manager Of Masulipatnam branch of the Appellant denied to any liability on the corporation and denied for the payment of the amount demanded by the respondent. He contended that there was no valid contract between the deceased and the Appellant and therefore no liability of payment lies on them.

A series of negotiations started between both the parties between 1 February 1961 and 23 December 1963 to resolve he issue but no common ground was reached by both the parties. On 10 January 1964 the legal representative of the deceased filed a civil suit for recovery against the Appellant in the Subordinate Judge's Court, Maulipatnam.

Life Insurance Corporation of India Vs. Raja Vasireddy Komalavalli Kamba and Ors.
Civil suit no. 2197 of 1970
Citation: AIR 1984 SC 1014
Supreme Court of India
Judgement date: 27 March 1984
Bench: Justice Sabyasachi Mukherjee ,
Justice Balakrishna Eradi
Appellant: Life Insurance Corporation of India
Respondent: Late Shri Raja Vasireddi Chandra Dhara Prashad

Legal issue raised:
The question of law which arises out in the present civil appeal was whether there was a concluded valid insurance contract between the deceased and the Life Insurance Corporation of India.

Contention of the Appellant
The appellant pleaded the following in the court of law that:

• The assurance if any given by the field officer to the deceased regarding the first payment of the premium would amount to acceptance of the proposal was not true and also it was not valid in the eyes of law. They further contended that the encashed cheques were not adjusted in the premium account but rather the amount was kept in a suspense account which did not created any liability on the Appellant and it did not amount to acceptance of the proposal in any case.
   
• They further submitted that the proposal cannot be termed as accepted as the terms of the proposal were not decided and other requirements of the insurance contract such as deciding the premium account and preparing and assessing the risk report of the insurance. Without the premium amount and the risk assessment there was no liability on the Appellant therefore no contract was formed and no cause of action arises in the given circumstances.
   
• They argued that according to the Life Insurance Corporation of India Standing Order, 1960 (Financial Powers), Chapter III[1] of the Standing Order, it was the Divisional Manager who was competent to accept a proposal for Rs. 50,000 and there was no communication between the Divisional Manager and the Branch Office regarding the acceptance of the said proposal. Therefore without fulfilling the official formalities there cannot be any communication of acceptance to the insured party.

Contention of the Respondent
The Respondent pleaded in the court of law that:

• They argued that at the time of signing the proposal form, the field officer of the Appellant had stated that the payment of first instalment of the premium amount would amount to acceptance of the proposal.
• In furtherance of this assurance, the deceased had issued two cheques in favour of the Appellant, which were on completion of all the preliminary formalities were encashed on 11 January 1961 and the contract was entered into when the cheques were appropriated into the premium account of the deceased. Thus, there was an implied acceptance of the proposal.
• They further submitted that the Appellant had without any objection or qualification accepted the proposal form and the acceptance of the proposal was done through the act of encashing the cheques.

Decisions of the lower courts

Subordinate Court, Masulipatnam
The Subordinate Judge had held that there was no valid contract between the parties. The judge based his judgement on the documents and the evidence collected from the parties, that at the time of the death of the deceased the Divisional Manager had not accepted the proposal sent by him. The trial court found that the amount was not appropriated towards the premium account but it was held in a suspense account which did not amount to acceptance of the proposal. And the representation made by the field officers that the payment of the first premium amount would mean the acceptance of proposal could not be proved in the court and as per the rules it could never be taken as an acceptance of the proposal. Hence the suit filed by the Respondents was dismissed with costs.

Andhra Pradesh High Court
The High Court overruled the Trial Court's judgement after taking in view of the documents and evidences which were produced in the Trial court. The High court held that there was an implied acceptance of proposal and formed a valid contract of insurance. The argument that the Divisional Manager was the authority to accept proposal of such an amount was never taken into writing.

The High Court took cognisance of the review slip prepared by the Assistant Divisional Manager on which he recommended that the proposal "may be accepted". The High Court held that Chapter III of the Financial Powers did not expressly deal with the power to acceptance of the proposal. It further stated that Corporation had failed to deposit any order which barred any officer one rank below to exercise the power vested with the higher authorities.

Judgement
The Supreme Court held that the High Court had erred in interpreting the evidences, and the Chapter III of the Financial Powers. It further stated that the review slip which the High Court had referred to decide the case had the sole purpose of letting the Divisional Manager to assess the risk and it did not have any binding factor on the Divisional Manager when deciding whether to accept the proposal or to reject it.

The defence of the Respondent about the assurance given by the field officer was not accepted as it could not be proved in the court through any evidence and the field officers did not have the authority to pass such statements. The keeping of the prepared policy document in favour of the deceased does not amount to acceptance as the acceptance must be expressly or impliedly given through any act which is agreed by both the parties.

In Corpus Juris Secundum, Vol. XLV page 986[2], it has been mentioned that for the acceptance to be complete, the communication should be done directly or through any means of communication prescribed in the agreement. The Supreme Court thus allowed the application of the Appellants and directed the Respondents to return half of the Rs. 85,000 which was awarded by the High Court.

Comments
The main point of conflict of the appeal was that whether there was an acceptance of the proposal form of the insurance. Acceptance as defined under sec. 2(b) of the Indian Contract Act, 1870[3] it can be inferred that the offeree has to signify his assent to the offer made, he is said to have accepted the offer. Here the corporation had never signified their assent to the deceased their acceptance of the proposal.

Though there was no equal bargaining power between the parties, it was standard form of contract and thus the terms were mostly pre decided. Here the deceased had completed his part of the agreement by issuing the cheques with amount of the first premium, it was therefore the corporation's duty to take the decision to accept or to reject the offer.

The field officers should have acted reasonably while dealing with the general public and should not lure others with false statements regarding the terms of the proposal forms. The corporation had taken longer time than what reasonably should have taken as the proposal was sent on 27 December 1960 along with the medical report required to assess the risk. The corporation on their part had been negligent to take excessive time for accepting the proposal.

Acceptance of an offer is an essential element of the contract, and as provided under sec. 3 of the Indian Contract Act, 1870[4], an offer is said to be accepted when the acceptance is communicated to the offeror. Here there was no implied or express communication of acceptance. So, there could not be any valid contract between the parties. Though the act of the corporation to get the cheques encashed should not be held valid as this is an act towards the accepting the proposal, the cheques should have been encashed once the communication of acceptance had been done.

End-Notes:

1. Life Insurance Corporation of India Standing Order], [1960], [Chapter 3], Gazette of India, pt. [4], [(23 July 1960)
2. Corpus Juris Secundum] [986] [The American Law Book Co.,1950
3. The Indian Contract Act], [2(b)], No. [9], Imperial Legislative Council, [1870][(IND.)
4. The Indian Contract Act], [3], No. [9], Imperial Legislative Council, [1870][(IND.)